Is Tesla’s Recent Increase in Share Price Sustainable?

Lucy Priestman discusses the sustainability of Tesla’s share price and what this could mean for the future.

While recent reports have indicated a successful turnaround for the car manufacturer, the question remains as to whether Tesla is worth its estimated value of £76.7bn.

Tesla is well known for implementing environmentally friendly technology into the production of electric vehicles, thus promoting clean energy storage. Such well known examples of how the company has implemented this technology extends to the sale of solar panels and solar roofs, which are very popular amongst environmentally conscious homeowners alike.

The renowned car manufacturer has further increased its market value as a result of the recent introduction of the new ‘Tesla Cybertruck’. This model has reportedly attracted over 5,870 daily orders, since the announcing of its production last year. Each model is said to feature a battery-operated electric vehicle, with a unique design. The company has boasted that the vehicle has ‘better utility than a truck, with more performance than a sports car’, which could refer to the exterior of the vehicle – designed for the maximum safety and durability of the truck. However, during a recent unveiling of the Cybertruck, the seemingly indestructible car windows were shattered during a durability demonstration. Therefore, it could be suggested that the durability of this popular model could turn out to be a disappointment, should it not live up to the company’s promises to consumers about the quality and resilience of the vehicle.

Increase in share price

A further increase in share price was reported shortly after a 20% increase in Tesla’s stock price, in February of this year.

The increased share price of more than approximately 13% is thought to have made the company the second most valuable car producer in the world, behind Toyota, which currently has an estimated market value of $227bn.

This recent increase in share price has led to much debate as to whether the current prices are sustainable for the future existence of the company.

Therefore, it could be suggested that it would not be sustainable as the company’s revenue for 2019 has only just surpassed $24bn, due to the reported loss of $862m in the same year. In response to this, Telsa informed its investors that its profit of $143m was “possible, by removing substantial costs from our business”.

Furthermore, the introduction of their newest factory in Shanghai has contributed towards their high rate of client retention, as the factory has been able to produce car parts more efficiently on a larger scale. Inevitably, the increase in car sales as a result of increased production rates has resulted in a further increase in overall profits for the company. It is also estimated that should these production rates continue, Tesla could expect a further increase in its market value, to approximately $1.3bn within in the next five years.

However, due to the recent pandemic, there has been a reported halt on production within Tesla’s factory in Shanghai, as there has been a temporary closure as a result of COVID-19. Therefore, it is likely the case that should this factory remain closed for a long period of time, that their production rates will significantly decrease, perhaps resulting in a further delay with the delivery of their vehicles.

Where does this leave the car manufacturer?

It is expected that there will be a further increase in the company’s market value due to developments within environmental law. This is to be supported by the introduction of new legislative measures, such as the prohibition of the sale of petrol, diesel and hybrid cars. It is thought that this ban will likely result in a higher demand for electric cars, therefore increasing sales for the car manufacturer.

Telsa is also expected to be met with a further demand for their vehicles, due to their production of autonomous self-driving taxis. Furthermore, such introductions of these futuristic models will likely mean that Tesla will seek to remain at the forefront of electric car manufacturing, with its modern and sustainable technology. However, companies such as Uber are currently in the process of testing autonomous vehicles, which may result in competition regarding the sale of these vehicles.

Moreover, it could be argued that the increase in share price may be reasonably proportionate to the success of the car company, due to the popularisation of its environmentally friendly technology.

By Lucy Priestman